Cisco's Last Two and a Half Years: From Inventory Crisis to an AI Comeback

The story

August 2023: "milestone year"

Closing out FY2023, CEO Chuck Robbins repeated the words "milestone year" and "phenomenal year" on the earnings call. Revenue hit $57.0 billion, up 11% — Cisco's best growth rate in a decade, largely from clearing a backlog of orders built up during the pandemic-era parts shortage. Confident in the momentum, Cisco guided FY2024 revenue to $57.0-58.2 billion.

The reversal came within three months

By November 2023, customers who had stockpiled inventory during the shortage said they needed time to work through it before placing new orders. Cisco cut its FY2024 guidance to $53.8-55.0 billion — as much as a $3.2 billion reduction in a single quarter. Then in February 2024, telecom-customer demand froze too, and management cut guidance a second consecutive time, to $51.5-52.5 billion, using the phrase "a greater degree of caution."

Two responses, launched in the middle of the crisis

Cisco answered on two fronts. First, it announced the roughly $26 billion acquisition of security and data-analytics company Splunk in September 2023 — the very quarter order weakness was already emerging — and closed the deal early, in March 2024. Second, it announced a restructuring (layoffs) in August 2024 to cut costs. The filings show the shift clearly: mentions of "artificial intelligence" in the 10-K rose from 3 each in FY2021 and FY2022, to 7 in FY2023, to 15 in FY2024; a new AI-related risk factor first appeared in the FY2023 10-K (absent from FY2021 and FY2022); and "Splunk" mentions jumped from zero to 90 in the FY2024 10-K.

The AI order book took over the story

In its August 2024 earnings call, Cisco introduced a new public target — "$1 billion" in AI-infrastructure orders — and then beat that target's pace every quarter after: $300 million in Q1 FY2025, a $700 million cumulative total by Q2, the full $1 billion target hit a full quarter early by Q3, and more than $2 billion cumulative by Q4 — double the original goal. FY2025 actual revenue of $56.65 billion beat the top end of guidance ($56.2 billion). That momentum only accelerated into FY2026: guidance was raised four consecutive times (from $59.0-60.0 billion in August 2025 to $62.8-63.0 billion in May 2026), and single-quarter AI-infrastructure orders hit $1.9 billion in the May 2026 call — more than triple the prior-year quarter.

That statement arrived in the same call that reported the largest single-quarter AI-order figure in the whole 12-quarter stretch reviewed here.

Guidance scorecard

FY2024's original guidance missed by about 6.7% after two consecutive cuts (though the final revised figure was hit almost exactly); FY2025 beat its original top end; and FY2026 has now been raised four consecutive times — a near-mirror image, in the opposite direction, of the FY2024 cutting streak.

Source: earnings call transcripts, Q4 FY2023 through Q3 FY2026, each quarter's guidance remarks; 10-K FY2024 and FY2025 Consolidated Statements of Operations for actual results.

Timeline

• Aug 2023FY2023 closes at $57.0B (+11%); peak confidence ("milestone year"); FY2024 guided to $57.0-58.2B.
• Sep 2023Splunk acquisition announced (~$26B) — the same quarter order softness was already emerging internally.
• Nov 20231st FY2024 guidance cut; orders down 20% YoY; management says 1-2 more quarters needed to digest channel inventory.
• Feb 20242nd FY2024 guidance cut (low point of the series); telecom weakness added; "a greater degree of caution."
• Mar 2024Splunk acquisition closes early, adding $4B+ in ARR; tone begins recovering.
• Aug 2024Restructuring (layoffs) announced alongside the first public "$1B AI orders" target; FY2024 closes at $53.8B (-5.6% YoY).
• May–Aug 2025AI order target hit a quarter early and then exceeded; FY2025 closes at $56.65B, beating guidance's top end.
• Nov 2025–May 2026FY2026 guidance raised four straight quarters; quarterly AI orders hit $1.9B (3x+ YoY); "strongest year in our history" language returns.

Our read

Cisco's last two and a half years read as one continuous arc rather than two separate stories: a networking giant over-shipped into its own channel, took the hit when that inventory needed to clear, and happened to land in the middle of an AI-datacenter capital-spending wave right as it was looking for a new growth story. The Splunk acquisition and AI-order momentum are real and measurable — but the concentration of that momentum in a small number of hyperscale cloud customers' capex decisions is the same kind of demand concentration that made the FY2024 reversal so abrupt in the first place.

What we still don't know

• How many more quarters rising memory-chip prices (first flagged on the Q2 FY2026 call) will pressure margins won't be clear until the FY2026 10-K discloses the full-year impact.
• Whether FY2026's guidance-raising streak ends in a reversal like FY2023's did, or reflects a structurally different AI-demand cycle can't be determined from this data alone.
• What exact share of total revenue comes from hyperscaler AI orders isn't disclosed — earnings calls report only order dollar amounts, not a revenue-recognition breakdown.